United States: 8 Key Issues For Hospitals And Health Systems – 2013

This article explores eight of the most challenging and
interesting issues that hospitals are facing as they move into
2013. Such issues include physician alignment strategy, the ability
of hospitals to stay independent, the development of accountable
care organizations ("ACOs"), the evolving priorities and
concerns of CEOs, and several other issues.

This article is written within the context of healthcare
consolidation that is occurring at all levels. At the hospital
level, hospitals are merging into other hospitals and independent
hospitals are finding it more challenging to thrive on their own.
At the hospital–physician level, the system has shifted
toward one in which nearly 50% of all physicians are employed by
hospitals and health systems, and nearly 80% of all physicians have
some sort of financial relationship with hospitals. There is also
increased consolidation among payors (although a great deal of this
consolidation has already happened over the last 10 years). This
has resulted in only several key payors existing in most markets.
Finally, payors are increasingly re-entering the healthcare
provider business, either as a hedge against provider market power
in certain markets or in an effort to attempt investment in areas
outside of insurance.

1. PHYSICIAN ALIGNMENT

The healthcare industry saw a wave of physician employment by
hospitals back in the 1990s, and hospitals are again pursuing
employment of physicians as a core strategy. Employing
physicians tends to work in a fee-for-service environment and
should also work as hospitals move forward into an ACO managed-care
type of environment. The downside to a physician employment
strategy is that it is expensive for the hospital, and there are
increasing anecdotal discussions about the losses per physician
that systems suffer as they employ physicians in larger numbers.
Here, the average productivity of the employed physicians seems to
be declining. Initially, as hospitals began to again employ
physicians, there had been great focus on hiring the most
productive physicians. Now it seems as though many hospitals have
an "all in" strategy and have hired with less focus on
the most productive physicians. Thus, the average productivity per
physician has regressed to a more average level. This means the
losses on professional fees are more significant, and it is harder
to "make up the numbers" on the technical side. There
are, of course, serious legal issues with attempting to make up the
financial losses on the technical side.

a. Other Physician Financial Relationships

Many systems, in contrast to a direct-employment strategy, focus
on entering into co-management, joint ventures, call coverage,
medical directorships and other financial relationships with
physicians. Increasingly, hospitals are concerned about not having
financial relationships with their admitting physicians. Many
hospitals examine a top-25-admitter analysis or use a similar means
to assess how dependent they are on their key physicians. Here,
they examine whether or not key physicians are "free
agents."

b. Decreasing Technical Fees

It has been estimated that hospitals receive 5 to 10 times the
technical fee revenues than the amount they invest on the
professional employment salary side in certain physician
specialties. See Merritt Hawkins Inpatient/Outpatient Revenue
Salary 2010. For example, the average orthopedic surgeon may have a
salary of $400,000 to $450,000 and generate $2,117,000 in revenues.
However, as the physician employment boom has expanded, this number
is likely becoming much lower on average.

c. Hospital-Owned Practices

Successful hospital-owned physician practices mix a
pro-physician autonomous culture with great competency in the way
that the practice handles its affairs. The hospital also must make
sure that they pay physicians fairly. This does not mean that the
hospital must be the highest-pay alternative for a physician.

d. Physician Shortages

The financial sustainability of the employment model will play
out over the next several years as hospitals face changes in
revenues. However, for a variety of reasons, including the fact
that there are likely to be significant physician shortages in many
markets, doctors may retain significant market power in connection
with their relationships with hospitals and other entities. This
will be very market dependent. For example, according to Dr. G.
Richard Olds, dean of the new medical school at the University of
California, Riverside (a school that was founded in part to address
the region's physician shortage), "'We have a shortage
of every kind of doctor, except for plastic surgeons and
dermatologists. . . . We'll have a 5,000 physician shortage in
10 years, no matter what anybody does.'" ("Doctor
Shortage Likely to Worsen with Health Law," Annie Lowry &
Robert Pear, The New York Times, July 28, 2012; see also
"Medical Schools Can't Keep Up," Suzanne Sataline
& Shirley S. Wang, Wall Street Journal, April 12,
2012.)

e. Physician Referrals/Leakage

As reimbursement becomes tighter for many hospitals, we see many
more health systems very closely examine what they refer to as
"leakage." In essence, they examine statistics to see how
many cases from employed and affiliated physicians are going to
other systems. This is a very substantial issue from a financial
perspective but also involves significant legal questions as to
what can and cannot be required of physicians in connection with
referral patterns.

2. SUSTAINABILITY OF INDEPENDENT HOSPITALS

Many hospitals are examining whether they will be able to
survive as independent entities over the next several years. A
couple of studies have looked at the key factors leading to
hospital bankruptcies and the key factors that can be used to
assess whether a hospital is in a position to survive independently
or not. One study, for example, shows that the three biggest causes
of financial instability for a hospital and potentially leading to
bankruptcy are mismanagement, increased competition and significant
reimbursement changes. For an overview of issues impacting hospital
viability, see "Factors Associated with Hospital Bankruptcies:
A Political and Economic Framework" by Amy Yarbrough Landry
& Robert J. Landry published in the Journal of Healthcare
Management in July/August 2009. The article also notes that
"[b]ankrupt hospitals are smaller than their competitors. They
are also less likely to belong to a system and more likely to be
investor owned."

Another study by Kurt Salmon and Associates explained six
factors which can be used to help assess whether or not a hospital
can survive independently. These included:

Does it have geographic barriers?

What does its payor mix look like—is it positive or
negative?

Does it have a substantial physician alignment strategy, or is
it highly dependent on free agent physicians?

What does its asset base look like? Does it need to make
significant capital investments? Does it need to make significant
renovations or build a replacement hospital? Does it have other
significant obligations ahead that it can't fund?

What is its cost structure? Is it locked into long-term pension
liabilities? Long-term lease rates? Or other long-term fixed costs
that are not changeable?

Does it have a high standard quality of care? Alternatively, is
it the type of hospital that a board member would not take his or
her family to?

These are some of the core questions that one examines in trying
to assess whether a hospital must look for a partner.

3. ACCOUNTABLE CARE ORGANIZATIONS

ACO formation is growing, but it is not yet clear how many
beneficiaries ACOs will actually serve. The great majority of ACO
development has come from hospitals, as opposed to physician groups
or payors. According to a study by Leavitt Partners, 60% of ASOs
are sponsored by hospitals, 23% are sponsored by physician groups,
and 16% are sponsored by health plans.

Large physician groups can also be well-positioned to develop
ACOs, ACOs, however, are very expensive to develop, with estimates
of the real cost to develop them tending to be very high. Further,
ACOs largely favor a tightly knit system where one can assure that
patients are seen by physicians and providers at in-network rates,
rather than out-of-panel and out-of-network rates. Thus, the
development of shared savings agreements and ACOs is another
institutional effort that favors the employed-physician model
versus other models.

Some experts are skeptical however. Thought leaders, such as Tom
Scully, Partner at Welsh, Carson, Anderson & Stowe, have
commented on ACOs as follows:

The biggest flaw with ACOs is that they are driving
more power to hospitals—not to doctors. Very scary,
and I am a hospital guy. The goal of ACOs was to organize doctors
to focus more on patients and keep the patients out of hospitals.
Instead, doctors are selling practices to hospitals in droves.

The start-up cost of a real ACO is probably $30 million and up
in a midsize market—and doctors don't have that capital.
So hospitals are pitching that they will be ACOs, and buying up
practices. Ever meet a hospital administrator who wants to work to
empty his beds? This means more power in expensive institutions,
more consolidation of those giants—and more bricks and mortar
and more costs. And with zero antitrust enforcement in the last 30
years in the hospital world, we are cruising for regional
hospital-based oligopolies—not good for doctors, patients or
our hopes for a more efficient system. And the well-intentioned
concept of ACOs is feeding that fire.

Similarly, Jeff Goldsmith, who is the President of Health
Futures, Inc., has warned that:

Managed care is not merely a matter of large populations (5,000
to 20,000 patients probably isn't large enough), but of
subpopulations with unique health problems that require different
protocols and approaches to improving their care. In the general
population, the healthiest half account for a grand total of 3% of
health costs. If those are the folks you end up worrying about in
an ACO, you're wasting your time. It is the incredibly
heterogeneous 5% of the population that generates 47% of all costs
that you need to focus on, and if you don't have enough of them
in your "attributed" population, you cannot concentrate
the resources to change their care and lives.

4. PHYSICIAN LEADERSHIP BURN OUT

The evolution of health care can require new roles for
physicians, from each a clinical and management perspective. It is
an open question as to whether the physician community is wholly
interested and/or has the energy to take on new leadership roles.
Many physician organizations suffer from a shortage of physicians
willing to put in significant non-clinical time toward clinic
leadership. The root of this unwillingness may be that more senior
physicians are somewhat burned out, or it could be that younger
physicians really want a "job" instead of to be a leader
in their organization.

For example, one study by the Mayo Clinic in Rochester,
Minnesota found that "[w]hile the medical profession prepares
for treating millions of patients who will be newly insured under
the health care law . . . nearly 1 in 2 (45.8%) of the nation's
doctors already suffer a symptom of burnout. 'The rates are
higher than expected,' says lead author and physician Tait
Shanafelt. 'We expected maybe 1 out of 3. Before health care
reform takes hold, it's a concern that those docs are already
operating at the margins.'" ("Doctor Burnout: Nearly
Half of Physicians Report Symptoms," Janice Lloyd, USA
Today, August 21, 2012.)

This burnout could have a very significant impact as:

[u]nhappy doctors [could] cut back their hours or retire early.
In turn, that could further stress the overstretched medical
system. For example, [one expert] says, it may exacerbate the
country's existing doctor shortage, predicted to grow to more
than 60,000 within three years, according to the Association of
American Medical Colleges. The study ranked medical specialties by
the percentage of doctors who are burned out—or conversely,
satisfied with their jobs. Emergency doctors ranked lowest, with a
burnout rate of 70 percent, while practitioners in such fields as
dermatology and pediatrics were among the most content. Already,
[another expert] says, prospective doctors have taken notice of
older physicians in badly afflicted specialties like general
surgery—which the study places last in career
satisfaction—and are choosing not to enter them. "Our
medical students are seeing general surgeons and primary care
physicians burned out, and they don't want any part," he
says."

An American College of Healthcare Executive ("ACHE")
survey recently analyzed the core concerns weighing on chief
executive officers. The top concerns, in order, included financial
challenges, healthcare reform, patient safety and quality, and
government mandates. It is particularly interesting to see the
growth of concern focused on quality as compared to 5 or 10 years
ago.

Further, CEOs are concerned about labor costs, loss of
procedures, less indemnity insurance, more uninsured patients, and
increased payor leverage. Other key factors the CEOs were concerned
about in the ACHE study included Medicaid reimbursement, decreased
government funding, Medicare reimbursement, bad debt, and
decreasing inpatient volumes.

6. ORTHOPEDICS

In 2011, nearly 600,000 knee replacements were performed in the
United States for a total cost of about $9 billion dollars. This
statistic, while meaningless in itself, gives some sense of why so
much effort is still placed on hospital alignment with orthopedic
physicians and how important orthopedic dollars are to individual
health and hospital systems. One article noted that "[a]t
about $15,000 each, the total annual tab for the operations
performed on patients of any age is now about $9 billion", the
researchers said. ("Rise in Knee Replacements Boosts Federal
Health Costs," Shirley S. Wang, Wall Street Journal, September
26, 2012.)

7. POPULATION HEALTH

Increasingly, parties talk about population health, or the
improvement of an entire population's health, as a potential
answer and approach to healthcare. However, despite its potential
benefits, it is hard to see how population health is likely to work
in very fragmented, large communities because, in part, it may be
difficult to coordinate such efforts and for systems to reap the
benefits of investments in population health management. In
contrast, where a hospital is the key provider in an area and there
is a not lot of competition, it is easier to see the hospital
system wholly engaging in population health.

8. HEALTHCARE INFORMATION TECHNOLOGY

Healthcare information technology is an area of great interest
and one which has seen a great disparity between the amount of
money put in and the general lack of results to-date. One
constantly hears the refrain of decreased productivity in
physicians, particularly for the first few years after electronic
medical records are installed, as well as concerns with up-coding
through the use of electronic medical records and concerns that the
national labor force is not well-positioned to actually service and
handle the growth of electronic medical records technology. In
addition, providers will increasingly be held hostage to one or two
different systems that the major electronic medical records
companies offer, which may not be a positive development.

For example, electronic medical records

[c]ustomers, such as New Hampshire's Dartmouth-Hitchcock
Medical Center [("DHMC")] are feeling the pinch. DHMC
which implemented Epic last year at a cost of $80 million, expects
a weak operating performance in 2012, partly because of expenses
related to Epic.

Now, re-read the definition of the Stockholm syndrome and see if
it isn't apt. But it doesn't have to be this way, as [the
author has] noted in quoting an article by Kenneth Mandl and Zak
Kohane in the New England Journal of Medicine:

It is a widely accepted myth that medicine requires complex,
highly specialized information-technology (IT) systems. This myth
continues to justify soaring IT costs, burdensome physician
workloads, and stagnation in innovation — while doctors
become increasingly bound to documentation and communication
products that are functionally decades behind those they use in
their "civilian" life.

We believe that EHR vendors propagate the myth that health IT is
qualitatively different from industrial and consumer products in
order to protect their prices and market share and block new
entrants. In reality, diverse functionality needn't reside
within single EHR systems, and there's a clear path toward
better, safer, cheaper, and nimbler tools for managing health
care's complex tasks.

The burden that electronic medical records imposes can be
significant. In the opinion of one physician, "Tasks that once
took seconds to perform on paper now require multistepped points
and clicks through a maze of menus. Checking patients into the
office is an odyssey involving scanners and the collection of
demographic data – their race, their preferred language, and
so much more – required by Medicare to prove that we are
achieving "meaningful use" of our EMR. What
'meaningful use' means no one knows for sure, but our
manual on how to achieve it is 150 pages long."
("Physician, Steel Thyself for Electronic Records, Anne Marie
Valinoti, Wall Street Journal, October 22, 2012.)

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here

If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you
are granted a non-exclusive, revocable license to access the Website under its
terms and conditions of use. Your use of the Website constitutes your agreement
to the following terms and conditions of use. Mondaq Ltd may terminate your use
of the Website if you are in breach of these terms and conditions or if Mondaq
Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to
read the full text of the content and articles available (the Content). You may
not modify, publish, transmit, transfer or sell, reproduce, create derivative
works from, distribute, perform, link, display, or in any way exploit any of the
Content, in whole or in part, except as expressly permitted in these terms &
conditions or with the prior written consent of Mondaq Ltd. You may not use
electronic or other means to extract details or information about Mondaq.com’s
content, users or contributors in order to offer them any services or products
which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the
suitability of the information contained in the documents and related graphics
published on this server for any purpose. All such documents and related
graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or
its respective suppliers hereby disclaim all warranties and conditions with
regard to this information, including all implied warranties and conditions of
merchantability, fitness for a particular purpose, title and non-infringement.
In no event shall Mondaq Ltd and/or its respective suppliers be liable for any
special, indirect or consequential damages or any damages whatsoever resulting
from loss of use, data or profits, whether in an action of contract, negligence
or other tortious action, arising out of or in connection with the use or
performance of information available from this server.

The documents and related graphics published on this server could include
technical inaccuracies or typographical errors. Changes are periodically added
to the information herein. Mondaq Ltd and/or its respective suppliers may make
improvements and/or changes in the product(s) and/or the program(s) described
herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally
identifies you, including what sort of information you are interested in, for
three primary purposes:

To allow you to personalize the Mondaq websites you are visiting.

To enable features such as password reminder, newsletter alerts, email a
colleague, and linking from Mondaq (and its affiliate sites) to your website.

Mondaq (and its affiliate sites) do not sell or provide your details to third
parties other than information providers. The reason we provide our information
providers with this information is so that they can measure the response their
articles are receiving and provide you with information about their products and
services.

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to
view the free information on the site. We also collect information from our
users at several different points on the websites: this is so that we can
customise the sites according to individual usage, provide 'session-aware'
functionality, and ensure that content is acquired and developed appropriately.
This gives us an overall picture of our user profiles, which in turn shows to
our Editorial Contributors the type of person they are reaching by posting
articles on Mondaq (and its affiliate sites) – meaning more free content for
registered users.

We are only able to provide the material on the Mondaq (and its affiliate
sites) site free to site visitors because we can pass on information about the
pages that users are viewing and the personal information users provide to us
(e.g. email addresses) to reputable contributing firms such as law firms who
author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us
not to disclose your details to any of these parties, please tick the box above
or tick the box marked "Opt out of Registration Information Disclosure" on the
Your Profile page. We and our author organisations may only contact you via
email or other means if you allow us to do so. Users can opt out of contact when
they register on the site, or send an email to unsubscribe@mondaq.com with “no
disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate
registration form. This is a personalised service where users choose regions and
topics of interest and we send it only to those users who have requested it.
Users can stop receiving these Alerts by going to the Mondaq News Alerts page
and deselecting all interest areas. In the same way users can amend their
personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an
identifying user number. The cookies do not contain any personal information
about users. We use the cookie so users do not have to log in every time they
use the service and the cookie will automatically expire if you do not visit the
Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to
personalise a user's experience of the site (for example to show information
specific to a user's region). As the Mondaq sites are fully personalised and
cookies are essential to its core technology the site will function
unpredictably with browsers that do not support cookies - or where cookies are
disabled (in these circumstances we advise you to attempt to locate the
information you require elsewhere on the web). However if you are concerned
about the presence of a Mondaq cookie on your machine you can also choose to
expire the cookie immediately (remove it) by selecting the 'Log Off' menu option
as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example,
advertisers). However, we have no access to or control over these cookies and we
are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement,
and gather broad demographic information for aggregate use. IP addresses are not
linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or
its affiliate sites) are not responsible for the privacy practices of such other
sites. We encourage our users to be aware when they leave our site and to read
the privacy statements of these third party sites. This privacy statement
applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or
contests. Participation in these surveys or contests is completely voluntary and
the user therefore has a choice whether or not to disclose any information
requested. Information requested may include contact information (such as name
and delivery address), and demographic information (such as postcode, age
level). Contact information will be used to notify the winners and award prizes.
Survey information will be used for purposes of monitoring or improving the
functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our
site, we ask them for the friend’s name and email address. Mondaq stores this
information and may contact the friend to invite them to register with Mondaq,
but they will not be contacted more than once. The friend may contact Mondaq to
request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’
information. When users submit sensitive information via the website, your
information is protected using firewalls and other security technology. If you
have any questions about the security at our website, you can send an email to
webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode),
or if a user no longer desires our service, we will endeavour to provide a way
to correct, update or remove that user’s personal data provided to us. This can
usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will
post those changes on our site so our users are always aware of what information
we collect, how we use it, and under what circumstances, if any, we disclose it.
If at any point we decide to use personally identifiable information in a manner
different from that stated at the time it was collected, we will notify users by
way of an email. Users will have a choice as to whether or not we use their
information in this different manner. We will use information in accordance with
the privacy policy under which the information was collected.

How to contact Mondaq

If for some reason you believe Mondaq Ltd. has not adhered to these
principles, please notify us by e-mail at problems@mondaq.com and we will use
commercially reasonable efforts to determine and correct the problem promptly.

By clicking Register you state you have read and agree to our Terms and Conditions